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Saving on Long Term Capital Gains

Claiming exemptions from Capital Gains tax

Sec. Asset transferred Who can claim exemption Amount 
to be invested
Amount eligible for exemption Asset in which it is to be invested and period; lock-in period Asset transferred/ converted into cash before the lock-in period Whether CGAS, 1988 available
54 Residential house property Individual, HUF LTCG arising from the transfer The amount of capital gains utilised for this purpose.

If whole of the capital gains are so utilised, the whole amount will be exempt.

Another residential house property:

If constructed:
Within one year before, or two year after the date of transfer

If purchased:
Within three years from the date of transfer

Three years from the date of acquisition.

Cost of acquisition of new asset will be reduced by the amount of capital gains earlier exempt. 

The new gain shall always be a short-term capital gain

Yes
54B Land used for agriculture purpose by the transferor or his parents for agricultural purposes for at least the last two years from the date of transfer Only individuals Any capital gain (LTCG/ STCG) arising from the transfer The amount of capital gains utilised for this purpose. 

If whole of the capital gains are so utilised, the whole amount will be exempt.

Another agricultural land within two years of such transfer date (can be rural/urban agricultural land);

Three years from the date of acquisition.

Cost of acquisition of new asset will be reduced by the amount of capital gains earlier exempt. 

The new gain shall always be a short-term capital gain.

Yes
54D Lands and buildings used by any industrial undertaking for its business, on its compulsory acquisition under any law. 

Such land/building was used by the transferor for the purpose of his business for at least the last two years from the date of transfer

Any industrial undertaking Any capital gain (LTCG/ STCG) arising from the transfer The amount of capital gains utilised for this purpose. 

If whole of the capital gains are so utilised, the whole amount will be exempt.

Purchase and/or construction of another land/buildings within a period of three years after the date of compulsory acquisition; 

Three years from the date of acquisition

Cost of acquisition of new property will be reduced by amount of capital gains exempt earlier. 

The new gain shall always be a short-term capital gain.

Yes
54EC Any long-term capital asset Any tax payer LTCG arising from the transfer The amount of LTCG utilised for this purpose.

 If whole of the LTCG are so utilised, the whole amount will be exempt.

Any bond redeemable after three years issued, on or after:

a)April 1, 2000, by NABARD or National Highways Authority of India. 

b)April 1, 2001 by NABARD or National Highways Authority of India or Rural Electrification Corporation Ltd.; 

Three years from the date of acquisition.

Long-term capital gains earlier claimed exempt will be treated as the long-term capital gains of the year of the transfer/ conversion into money No
54ED Long-term capital asset being listed securities or units Any tax payer LTCG arising from the transfer The amount of LTCG utilised for this purpose within six months from the date of transfer. 

If whole of the LTCG are so utilised, the whole amount will be exempt.

Eligible issue of capital, that is, an issue of equity shares satisfying following conditions:

a) the issue is made by a public company formed and registered in India;

b) the shares forming part of the issue are offered for subscription to the public; 

One year from the date of acquisition

Long-term capital gains earlier claimed exempt will be treated as the long-term capital gains of the year of the transfer/ conversion into money No
54F Any capital asset other than a residential house Individual,  HUF # Net sales consideration arising from the transfer Proportionate LTCG (See note below). 

If whole of the net sales consideration are so utilised, the whole LTCG will be exempt.

One residential house property.

If constructed: 
Within one year before, or two year after the date of transfer of such asset.

If purchased: 
Within three years from the date of such transfer; 

Three years of purchase or construction.

Cost of acquisition of new asset will be reduced by the amount of capital gains earlier exempt. 

The new gain shall always be a short-term capital gain.

Yes
54G Land, building plant and machinery owned by an industrial undertaking. An industrial undertaking, on its shifting out of an urban area Any capital gains (LTCG/STCG) arising from the transfer The amount of capital gains utilised for this purpose.

If whole of the capital gains are so utilised, the whole amount will be exempt.

Amount should be used for specified purposes. See note below; 

Three years from the date of acquisition

Cost of acquisition of new asset will be reduced by the amount of capital gains earlier exempt. 

The new gain shall always be a short-term capital gain.

Yes
Note: 

LTCG:Long Term Capital Gains 

STCG:Short Term Capital Gains 

Section 54EA and section 54EB are no longer effective. Hence, they have not been discussed above. 

Proportionate LTCG means:Capital Gains * Amount Invested under section 54F / Net Sales Consideration 

Specified purpose means and includes: 

  • Purchasing new plant or machinery for the industrial undertaking in the place where it is so shifted
  • Acquiring new land or building, or purchase of new building for the industrial undertaking in the place where it is so shifted
  • Expenses on shifting of the industrial undertaking to the place where it is so shifted
  • Any other such expenditure specified by the Central Government for this purpose.

Capital Gains Accounts Scheme, 1988: 

Where you have earned capital gains in any transaction, but are unable to utilise the amount so received in the manner specified above, you may take a via option to save your capital gains tax. The Central Government has announced the 'Capital Gains Accounts Scheme, 1988' for this purpose.

Where the amount of capital gain is not utilised by the taxpayer towards the cost and expenses specified, before the date of furnishing of the return of income, he shall deposit the capital gains in a capital gains account scheme before the due date of furnishing the return of income. In such a case, the amount already utilised by the taxpayer for the specified purpose, along with the amount so deposited, shall be deemed to be utilised for the purpose specified, and shall be eligible for exemption. 

However, the amount so required to be deposited should be utilised for the purpose it is meant for, within the specified period. If the taxpayer fails to utilise the amount within the period specified for the acquisition of the new asset, the amount of capital gains claimed exempt shall be deemed to be the capital gain in the year in which the period of acquisition of the new asset expires. Accordingly, it will be taxable at the rates applicable for the year in which it is taxed.

It is important to note that this benefit is not available under section 54EC and 54ED.

# Sec 54F - Tax payer can hold not more than one residential house on the date of transfer of the original asset except the one already purchased for claiming exemption under this section.

No other residential house should be:
(a) Purchased within two years after the date of transfer of original asset, or
(b) Constructed within three years after the date of transfer of original asset

 

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